The International Investment Bank (IIB), which is headed by Russia, announced on April 19 that it will depart Budapest and relocate to Moscow following US sanctions and the Hungarian government’s withdrawal of participation in the development bank as a result of severe US pressure.
Sanctions worked smoothly
The IIB acknowledged earlier this week that it was unable to fulfill its obligations to partners, but it placed the blame on challenges brought on by sanctions rather than a liquidity crisis.
The bank was founded in 1970 as a COMECON development bank during the Soviet era, but it has since positioned itself as a prominent development bank in the Central Europe region. It once had several of the former Warsaw Pact nations among its owners.
Orban shocked society by referring to the US as a “friend” and leaving the bank when the IIB was subjected to penalties.
Hungary’s resignation puts an end to Moscow’s plans to create an IFI with a European orientation, like the EBRD or EIB, leaving Russia as the sole major stakeholder.
The decision also represents a humiliating setback for Orban’s plan to bring the IIB to Budapest in 2019 and thereby improving Hungary’s position as a major global financial hub and creating stronger financial connections with Moscow. With 25.4% of the bank’s share capital, Hungary was the second-largest shareholder.
The bank stated in a new statement on April 19 that it was “currently deprived of the ability to conduct financial operations due to US sanctions and the designation of International Investment Bank in the US OFAC SDN list.”
IIB said that the foundation for continued operations from its Budapest headquarters and within the European Union had been used up. Because of this, the IIB has suggested that Hungary begin the process of renunciation of the agreement about its Budapest headquarters.
The bank has also declared that it upholds the principle of honoring its commitments and that it will make use of all tools at its disposal to safeguard its lawful interests.
Due to allegations that some of the IIB’s employees, some of whom enjoy diplomatic immunity due to its status as a development bank, are spies, the organization has been hounded by controversy.
Prior to the penalties, Washington had criticized Budapest for not expelling Russian officials who were allegedly moving around in large numbers in Hungary, in part due to the IIB’s presence.
Grocery caps: the state limits prices on food
According to the proposal, retail establishments in question must provide a product in each category at least 10% less expensive than the pricing in place for the 30 days before the special offer.
Every week, products must be chosen for the special offers, excluding those with price caps, to guarantee that a variety of products are available for purchase at a discount.
In addition to the war and sanctions, the government has placed some of the blame for Europe’s highest CPI (Consumer Price Index is a measure of the average change over time in the prices paid by consumers) – 25.6% y/y in March, three times the EU average – and food inflation of 45%, double the EU average – on excessive pricing and corporate profits.
Local analysts claim that the government’s most recent initiative not only violates the foundational principles of a market economy, placing additional obligations on merchants but will also work against efforts to combat inflation as businesses may choose to spread their losses among other goods.
According to analysts, the restriction on Ukrainian grains, meats, and fruits might also hinder the decline in consumer costs.
Photo: Viktor Orban (R) (Antara Photo/Puspa Perwitasari)